National Emergency Fund: How Much Money Do I Need to Save?

Seven million Americans are at risk of man-made earthquakes, according to a U.S. Geological Survey report published in March 2016. On top of man-made catastrophes, natural disasters and terrorist attacks are more cause to worry — and don’t forget the zombie apocalypse that could happen at any moment. Emergencies do happen and when they strike, having money in your pocket makes a big difference.

In some parts of the country, hurricanes, flash storms, blizzards or floods are common; these events could knock out local power lines in your area. Electricity could be down for days so stores won’t be able to accept debit or credit cards, and neither will banks. To be prepared for these types of catastrophes — or a disaster like losing your wallet or credit cards — know how much cash you should have on hand to cover necessities and immediate expenses.

How much is enough for an emergency fund?

Part of being prepared for any contingency, big or small, is having a reserve of emergency cash at your disposal at all times. When you can’t rely on accessing your funds electronically, you’ll need some legal tender to buy food, gas or other necessities.

“Whether it’s Mother Nature or some other disaster out of your control, you always want to be prepared by having some emergency cash on hand,” said Annalee Leonard, an investment advisor representative and president of Mainstay Financial Group. “Banks and ATMs may not be up and running for days after a strong storm. I recommend my clients have three to five days’ worth of spending money, just in case.”

To decide how much to save for an emergency fund, you’ll need to ask yourself a couple questions:

How much will I need for an extreme catastrophic event?

How much can I afford to save?

“It’s wise to have a small amount of physical cash, about $1,000, at home for the truest of emergencies when banks are not operating,” said Priyanka Prakash, finance specialist at Fit Small Business, a company that finds the best small-business software, services and financing options.

Or take this scenario: The president declares a national emergency, and you know that you won’t have access to your bank account for one full week. You’ll need immediate cash on hand for the cost of a week’s worth of groceries and emergency supplies. If authorities should order an evacuation, gas and motel costs come into play. $2,000 should cover those costs, with a little extra just in case.

Despite these suggestions and what some other experts might advise, though, there’s no magic amount you should have nestled away in your emergency fund. The answer for how much you should save for an emergency situation is that you should do what feels right to you. No matter the amount, an emergency fund is absolutely necessary — so make it a priority to build one.

Even if you can’t afford to save much, it’s better to save something rather than nothing, Prakash said. So if you can only afford to set aside $1,000 for an emergency fund, that’s better than not saving at all.

The Cost of an Emergency Kit

Take into account that in a national emergency, inflation will rise, demand for necessities will increase and price gouging will likely ensue. With all that in mind, in addition to your regular emergency savings, you should prepare to have enough to cover the following costs in a national emergency situation:

Water – 10 gallons

$10

Gas – 20 gallons

$60

Back-up power generator

$200

Battery-powered lights

$20

Emergency solar hand crank radio

$30

Sources: Amazon.com and Walmart.com

Prices for gas and water will likely be much higher in the event of an actual national state of emergency. Note that the items in the table are emergency purchases for one person, and you should already have some kind of emergency kit that includes these recommendations from Money.com:

Batteries and tools: $122

First aid supply kit: $48

Non-perishable food: $120

Medication: $38

Spare clothing: $44

How is a national emergency fund different from other types of savings?

Unlike a regular emergency fund — which should be used to cover things like unemployment, medical or car emergencies, emergency home repairs or bereavement-related expenses — a national emergency fund should be reserved for catastrophes in which you cannot use credit cards.

Regular emergency savings should be stashed in some kind of savings, money market or certificate of deposit account. Your savings for a national emergency fund should be kept in cash. “Avoid the stock market because you can lose [your national emergency money] right when you need it the most,” Prakash said.

Neither type of emergency fund is meant to be dipped into or spent like disposable income, and creating one takes the same approach as that for a rainy-day fund, a nest egg or any other savings.

Starting Your Emergency Fund

Financial author Dave Ramsey and many other experts suggest that the first step to beginning an emergency fund is to start small. If you’re looking to set aside $3,000 in one year, that would mean you’ll have to save $250 per month over the next 12 months. Extend your savings goal to 18 months, and that’s $166 per month.

Or you can automate saving a percentage of your income. “Put aside about 10 percent of your monthly take-home income for your emergencyfund,” Prakash said.

If you’ve managed to save up $15,000 in emergency funds over time, for example, it might not be a prudent idea to have all that money in cold, hard cash sitting around your house. For one reason, it’s unsafe, and two, it might actually be more than you need.

“There is a price to putting away a large amount of money for a rainy day: That price is inflation, which has averaged about 1 to 2 percent per year in the last few years,” said Prakash. “To minimize loss from inflation, it’s wise to not keep too much of your emergencyfund at home in physical cash. By keeping the bulk of the money in a savings account or a certificate of deposit, you can at least earn some interest on it to counteract inflation.”

Depositing your savings into an interest-bearing checking account or high-yield certificate of deposit can help multiply your savings over time. Entrepreneur magazine, however, says to keep your emergency fund investments simple; these funds aren’t meant to earn much interest or sit on the stock market for long, but be liquid and available when you need them. In an emergency, your personal safety — not interest rates — is what’s important.

“Increase the amount of cash you keep at home by about 1 to 2 percent each year so that it roughly keeps pace with inflation,” Prakash said. “That way, in a serious emergency where banks aren’t operating, your cash will be enough to pay for food, shelter and other immediate necessities.”

How to Hide Money at Home

Many people are reluctant to keep large amounts of money in their homes for fear of theft or misplacement. Keeping cash at home is risky, especially when it’s in large denominations. A home break-in is the type of emergency you won’t have money for if your cash supply is stolen — physical money isn’t insured and it’s unlikely to be recovered. Finding secure and clever places to hide your emergency fund can safeguard the security of your assets; think of it as making a bank within your home.

Common advice is to keep some cash at your house, but not too much. The $1,000 cash fund Prakash recommended for having at home should be kept in small denominations. “Favor smaller bills like twenties because some retailers won’t accept larger notes,” she said.

However, when looking to store your money in a compact fashion, larger bills in fewer quantities take up less space — so it’s up to your discretion. Whatever you decide, stash your cash away in a practical, yet unorthodox way. “Don’t put money under the mattress because that’s the first place a robber will look,” Prakash said.

“A heavy-duty steel or cast iron safe that’s bolted to the floor should do the trick,” said Mark Goldstein, founder of SAFE-Money Alliance, which offers financial products and services to individuals and business owners.

More options for hiding your emergency cash funds include:

An empty, opaque container of coffee grounds or mayonnaise

A bottle of aspirin in your medicine cabinet

A hollowed-out book

Between the cardboard backing of a framed picture and the photo itself

Encased in weatherproof material and buried in your backyard or the soil of a potted plant

Enclosed in a plastic sandwich bag and hidden in the freezer among frozen foods

Cash can be your biggest protection against a national emergency or disaster if circumstances prevent you from withdrawing cash from the bank. It’s kind of like insurance — you pay for it hoping you will never need it. The suggested hiding places should keep your money safe just in case that emergency should unexpectedly pop up.

Keep as much money in your home as you think you’ll need — not too much that you can’t afford to lose, but enough to sustain you through several days to several weeks of cash-only situations. Just remember that if you deplete your liquid, cash emergency fund, you’ll need to replace it as you would any savings account. You don’t know how thankful you’ll be to have some green on you when the world is taken over by zombies.

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